Fraternal subordinate lost exemption after failing to provide records

Plain-English summary

A subordinate organization covered by a group ruling had been classified as a fraternal beneficiary society under section 501(c)(8). During an examination, it gave only sporadic and incomplete responses, then stopped communicating with the IRS despite repeated letters and calls. The missing information prevented the IRS from verifying that the organization operated under a lodge system, provided the required member benefits, maintained adequate records, and continued to satisfy its exempt purpose. The IRS concluded that the organization had not met the recordkeeping and reporting requirements of sections 6001 and 6033 or established its continued qualification under section 501(c)(8). It removed the organization from the group exemption and revoked its exempt status effective June 1, 2018.

Ruling snapshot

• Question: Did the subordinate fraternal organization establish that it continued to qualify under section 501(c)(8) and complied with IRS record requests?
• Outcome: revocation
• Key authorities: IRC §§ 501(a), 501(c)(8), 6001, 6033; Treas. Reg. §§ 1.501(c)(8)-1, 1.6001-1, 1.6033-1; Rev. Rul. 59-95

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Independent Office of Appeals

Date: OCT 19 2023
Person to contact:
Name:
Employee ID Number:

Phone:
Fax:
Release Number: 202402011 Hours:
Release Date: 1/12/2024 Employer ID number:
UIL Code: 501.08-00
Uniform issue list (UIL):
0501.08-00
Certified Mail
Dear

This is a final adverse determination that you do not qualify for exemption from federal income tax under
Internal Revenue Code (the "Code") Section 501(a) as an organization described in Section 501(c)

of the Code.

We have hereby revoked the favorable determination letter to you dated and you are no longer
exempt under Section 501(a) of the Code effective June 1, 2018.

. We made the adverse determination for the following reasons:

Organizations exempt from tax under section 501(c)(8) of the Internal Revenue Code must be fraternal
beneficial societies, operated under the lodge system, which provide life, sick, accident, or other benefits to
their members or their dependents. See Treas. Reg. § 1.501(c)(8)-1(a). You have not demonstrated that you are
a fraternal organization, or that you provide life, sick, accident or other benefits required by I.R.C. § 501(c)(8).
Further, you have not kept sufficient records to establish that you are observing the conditions of your
tax-exempt status. See Treas. Reg. § 1.6033-1; Rev. Rul. 59-95.

Contributions to your organization are not deductible under Section 170 of the Code.

You're required to file federal income tax returns on Forms 1120, U.S. Corporation Income Tax Return. Mail

your form to the appropriate Internal Revenue Service Center per the form's instructions. You can get forms and
instructions by visiting our website at www.irs.gov/forms or by calling 800-TAX-FORM (800-829-3676).

You've agreed to waive your right to contest this determination under the declaratory judgment provisions of
Section 7428 of the Code.

We'll make this letter and the proposed adverse determination letter available for public inspection under
Section 6110 of the Code after deleting certain identifying information. We provided to you, in a separate

mailing, Notice 437, Notice of Intention to Disclose. Please review the Notice 437 and the documents attached
that show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in

Notice 437.

Letter 1371-A (Rev. 10-2021)
Catalog Number 62960H

If you have questions, contact the person at the top of this letter.

Enclosures:
IRS Appeals Survey

Sincerely,

Valeria B. Farr
Appeals Team Manager

Letter 1371-A (Rev. 10-2021)
Catalog Number 62960H

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities

Date: 04/11/2022 Taxpayer ID number:

Form:
Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:
Fax:
Address:
Manager's contact information:
Name:
ID number:

CERTIFIED MAIL — Return Receipt Requested Telephone:

Dear

Response due date:
05/11/2022

Why you're receiving this letter
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke
your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(8).

If you agree
If you haven’t already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the

contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an
organization described in IRC Section 501(c)(8) for the periods above.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this letter.

2. Send any information you want us to consider.

3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional
information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after
the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes
informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of
limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case.
For your protest to be valid, it must contain certain specific information, including a statement of the
facts, applicable law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn’t
apply now that we’ve issued this letter.

4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities)

if you feel the issue hasn’t been addressed in published precedent or has been treated inconsistently by the
IRS.

Letter 3618 (Rev, 8-2019)
Catalog Number 34809F

If you’re considering requesting technical advice, contact the person shown at the top of this letter. If you
disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as
explained above. A decision made in a technical advice memorandum, however, generally is final and
binding on Appeals.

If we don't hear from you

If you don’t respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final
adverse determination letter.

Contacting the Taxpayer Advocate Office is a taxpayer right

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Additional information
You can get any of the forms and publications mentioned in this letter by visiting our website at
www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).

If you have questions, you can contact the person shown at the top of this letter.

Sincerely,

Lynn Brinkley
Director, Exempt Organizations Examinations
Enclosures:
Form 886-A
Form 6018
Form 4621-A
Pub 892
Pub 3498

Letter 3618 (Rev. 8-2019)
Catalog Number 34809F


Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items

Name of taxpayer

Tax Identification Number (last 4 digits) | Year/Period ended

ISSUES:

Whether the exempt under a group ruling as a

501(c)(8) should be removed from the group exemption due to its failure to respond and produce
records.

FACTS:
The (hereafter referred to as the
" ”) is an Association. The is a subordinate exempt under an
IRC 501(c)(8) group ruling with the central organization being the
. The is classified as an IRC 501(c)(8)

Fraternal Beneficiary Society/Association. Its prior subsection classification was an IRC
501(c)(10) Domestic Fraternal Society & Association.

Per the Form , it is operated for the purpose of providing charitable
donations.

After previously responding and communicating with the Internal Revenue Service, as of

, the has completely stopped verbal and written communication in
connection to the examination of the Form for the tax year ending . As a
result, the has failed to provide all the requested documents required to conduct

and conclude the examination.

Exhibit A (below) provides a list of the Internal Revenue Service’s correspondence or phone

contact made to the requesting that it provide information pertaining to its Form
for the year ending .

Summary of Exhibit A
Date Sent | Contact | Correspondence Certified
or Called Type Sent/Phone Receipt Signed Response
Contact By and Date
USPS Sent Letter 3614
a Letter to Organization No response
pee : Phone contact
made with . Agent
was told that the contact person
Phone | Called listed on no longer
Organization worked at the ;
Agent was given the name

Catalog Number 20810W Page 4 www.irs.gov Form 886-A (Rev. 5-2017)


Form 886-A
(May 2017)

Department of the Treasury — Internal Revenue Service

Explanations of Items

Schedule number
or exhibit

Name of taxpayer

Tax Identification Number (last 4 digits)

Year/Period ended

Called No answer. Unable to leave
Phone message. No response
Called No answer. Left voicemail
Phone message. No response.
Called No answer. Left voicemail
Phone message. No response.
Called No answer. Left voicemail
Phone & message. No response.
Certified | Letter 5798
Letter 1 Extension IDR-
01 sent
Called No answer. Left voicemail
Phone message. No response.
Called No answer. Left voicemail
Phone message. No response.
Called
Phone _| Organization No answer. No response.
Certified | Letter 5077-d :
Letter Delinquency contacted Agent and stated that
Notice IDR-01 the Delinquency Notice
received was the 1st notice he
received from the IRS. He
stated that the secretary has
been out with :
so he and another Officer have
___|_been filling in for her.
Certified | Letter 5798 2"4 : Partial response to
Letter Extension to IDR- IDR-01 received.
01 sent
Phone | Called No answer. Left voicemail
message. No response.
Phone | Called No answer. Left voicemail
message. No response.
Certified | Letter5464IDR- [| at : Partial Response to
Letter 02 Follow-up to (Date | IDR-02 received.
IDR-01 IRS received)
Phone {| Phoned : Spoke with
. He confirmed
receipt of IDR-02.
Catalog Number 20810W Page 2 www. irs.gov Form 886-A (Rev. 5-2017)


Form 886-A

(May 2017)

Department of the Treasury — Internal Revenue Service

Explanations of Items

Schedule number
or exhibit

Name of taxpayer

Tax Identification Number (last 4 cigits)

Year/Period ended

Certified | Letter 5798 1st : Received partial
Letter Extension IDR-02 response to IDR-02 via fax -
Phone | Called No answer. Left voicemail
message. No response.
Phone | Called : Spoke with
Phone | Called No answer. Left voicemail
message. No response.
Phone | Called No answer. Left voicemail
a: message. No response.
Certified | Letter 5798 2nd - No response.
Letter Extension IDR-02 | Illegible
signature. “
” entered in
the “Received
by” field.
UPS L5077-D No response.
Letter | Delinquency
Notice iDR-02
Certified | Letter 5077-A Pre- - No response.
Letter Summons Notice | Illegible
signature.
” entered in
the “Received
by” field.
Certified | Letter 13164-e 34 (Date | No response.
Letter Party Contact IRS received) -
Notice sent illegible
signature.
Certified | Initial Report No response
Letfer

As demonstrated on Exhibit A, the

LAW:
501(c)(8)

has failed to meaningfully respond to the
Internal Revenue Service’s correspondence requests for information pertaining to the Form
for the tax period ending

— Fraternal beneficiary societies, orders, or associations—

501(c)(8)(A)

Catalog Number 208

1OW

Page 3

www.irs.gov

Form 886-A (Rev. 5-2017)


- j Schedule number
Form 886-A Department of the Treasury — Internal Revenue Service

(May 2017) Explanations of Items or exhibit

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

— operating under the lodge system or for the exclusive benefit of the members of a fraternity
itself operating under the lodge system, and

501(c)(8)(B)

— providing for the payment of life, sick, accident, or other benefits to the members of such
society, order, or association or their dependents.

Reg. 1.501(c)(8)-1 provides that a fraternal beneficiary society is exempt from tax only if operated
under the lodge system or for the exclusive benefit of the members so operating. Operating under
the lodge system means carrying on its activities under a form of organization that comprises local
branches, chartered by a parent organization and largely self-governing, called lodges, chapters,
or the like. In order to be exempt, it is also necessary that the society have an established system
for the payment to its members or their dependents of life, sick, accident, or other benefits.

IRC § 6001 provides that every person liable for any tax imposed by the IRC, or for the collection
thereof, shall keep adequate records as the Secretary of the Treasury or his delegate may from
time to time prescribe. Whenever necessary, the Secretary may require any person, by notice
served upon that person or by regulations, to make such returns, render such statements, or keep
such records, as the Secretary deems sufficient to show whether or not that person is liable for
tax.

Treas. Reg. § 1.6001-1(a) in conjunction with Treas. Reg. § 1.6001-1(c) provides that every
organization exempt from tax under IRC § 501(a) and subject to the tax imposed by IRC § 511 on
its unrelated business income must keep such permanent books or accounts or records, including
inventories, as are sufficient to establish the amount of gross income, deduction, receipts,
disbursements, or other matters required to be shown by such person in any return of such tax.
Such organization shall also keep such books and records as are required to substantiate the
information required by IRC § 6033.

Treas. Reg. § 1.6001-1(e) states that the books or records required by this section shall be kept at
all times available for inspection by authorized internal revenue officers or employees and shall be
retained as long as the contents thereof may be material in the administration of any internal
revenue law.

IRC § 6033(a)(1) provides, except as provided in paragraph (3), every organization exempt from
tax under section 501(a) shall file an annual return, stating specifically the items of gross income,
receipts and disbursements, and such other information for the purposes of carrying out the
internal revenue laws as the Secretary may by forms or regulations prescribe, and keep such
records, render under oath such statements, make such other returns, and comply with such rules
and regulations as the Secretary may from time to time prescribe.

Treas. Reg. § 1.6033-1(h)(2) provides that every organization which has established its right to
exemption from tax, whether or not it is required to file an annual return of information, shall
submit such additional information as may be required by the district director for the purpose of

Catalog Number 20810W Page 4 www.irs.gov Form 886-A (Rev. 5-2017)


Form 886-A Department of the Treasury — Internal Revenue Service Schedule number

(May 2017) Explanations of Items or exhibit

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

enabling him to inquire further into its exempt status and to administer the provisions of
subchapter F (section 501 and the following), chapter 1 of the Code and IRC § 6033.

Rev. Rul. 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested to
produce a financial statement and statement of its operations for a certain year. However, its
records were so incomplete that the organization was unable to furnish such statements. The
Service held that the failure or inability to file the required information return or otherwise to
comply with the provisions of IRC § 6033 and the regulations which implement it, may result in the
termination of the exempt status of an organization previously held exempt, on the grounds that
the organization has not established that it is observing the conditions required for the continuation
of exempt status.

TAXPAYER’S POSITION:

Due to the lack of response, the position is unknown. No formal position has
been provided by the

GOVERNMENT’S POSITION:

In accordance with the above cited provisions of the Code and regulations under IRC §§ 6001 and
6033, organizations recognized as exempt from federal income tax must meet certain reporting
requirements. These requirements relate to the filing of a complete and accurate annual
information return (and other required federal tax forms) and the retention of records sufficient to
determine whether such entity is operated for the purposes for which it was granted tax-exempt
status and to determine its liability for any unrelated business income tax.

The has been contacted on numerous occasions both verbally and in writing.
The had replied sporadically with incomplete responses. However, as of
, the has ceased communication with the Government. Repeated attempts
to contact the have gone unanswered. With the latest attempt being made on
, with the issuance of the Initial Report. The again provided no

response by the due date. As such, the Government has been unable to conduct or determine the
following:

• Organizational status as that of a 501(c)(8) Fraternal Beneficiary Society/Association

• Initial interview to determine if the activities performed by are those of a
501(c)(8) exempt organization

• The gaming and bar operations and related income and expenses

• The financial position

Catalog Number 20810W Page 5 www.irs.gov Form 886-A (Rev. 5-2017)


Form 886-A Department of the Treasury ~ Internal Revenue Service Schedule number
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
Hence, the Government cannot make a determination as to the operations and

activities are that of a 501(c)(8); existence of any applicable tax liabilities; and as to whether any
other information return filings are required.

Due to the failure to meaningfully respond and provide information, the
has not established that it is observing the conditions required for the
continuation of its exempt status. The has not established that it is organized

and operated exclusively for an exempt purpose.

CONCLUSION:

It is the IRS' position that the failed to establish that it meets the reporting
requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal income
tax under IRC § 501 (c)(8). Furthermore, the has not established that it is
observing the conditions required for the continuation of its exempt status or that it is organized
and operated exclusively for an exempt purpose. Accordingly, the is hereby
removed from the group exemption effective

Catalog Number 20810W Page 6 www.irs.gov Form 886-A (Rev. 5-2017)